Hospital Corp. of America v. F.T.C.

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: Before POSNER and FLAUM, Circuit Judges, and CAMPBELL; POSNER
• Citation: Hospital Corp. of America v. F.T.C., 807 F.2d 1381 (7th Cir. 1986)
• Decision Date: 18 December 1986
• Docket Number: No. 85-3185,85-3185
• Parties: , 1986-2 Trade Cases 67,377 HOSPITAL CORPORATION OF AMERICA, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

Page 1381

807 F.2d 1381

55 USLW 2382, 1986-2 Trade Cases 67,377

HOSPITAL CORPORATION OF AMERICA, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 85-3185.

United States Court of Appeals Seventh Circuit.

Argued Sept. 12, 1986.

Decided Dec. 18, 1986.

William D. Iverson, Covington & Burling, Washington, D.C., for petitioner.

Melvin H. Orlans, F.T.C., Washington, D.C., for respondent.

Before POSNER and FLAUM, Circuit Judges, and CAMPBELL, Senior District Judge. ^*

POSNER, Circuit Judge.

Hospital Corporation of America, the largest proprietary hospital chain in the United States, asks us to set aside the decision by the Federal Trade Commission that it violated section 7 of the Clayton Act, as amended, 15 U.S.C. Sec. 18, by the acquisition in 1981 and 1982 of two corporations, Hospital Affiliates International, Inc. and Health Care Corporation. Before these acquisitions (which cost Hospital Corporation almost $700 million), Hospital Corporation had owned one hospital in Chattanooga, Tennessee. The acquisitions gave it ownership of two more. In addition, pursuant to the terms of the acquisitions it assumed contracts, both with four-year terms, that Hospital Affiliates International had made to manage two other Chattanooga-area hospitals. So after the acquisitions Hospital Corporation owned or managed 5 of the 11 hospitals in the area. Later one of the management contracts was cancelled; and one of the lesser issues raised by Hospital Corporation, which we might as well dispose of right now, is whether the Commission should have disregarded the assumption of that contract. We agree with the Commission that it was not required to take account of a post-acquisition transaction that may have been made to improve Hospital Corporation's litigating position. The contract was cancelled after the Commission began investigating Hospital Corporation's acquisition of Hospital Affiliates, and while the initiative in cancelling was taken by the managed hospital, Hospital Corporation reacted with unaccustomed mildness by allowing the hospital to withdraw from the contract. For it had sued three other hospitals that tried to get out of their management contracts with Hospital Affiliates when Hospital Corporation assumed the contracts--only none of these hospitals was in a market where Hospital Corporation's acquisition of Hospital Affiliates was likely to be challenged. Post-acquisition evidence that is subject to manipulation by the party seeking to use it is entitled to little or no weight. Cf. Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 276 (7th Cir.1981). The Commission was entitled to give it no weight in this case, both to simplify the adjudication of merger cases generally and because excluding this one hospital would not have altered the market share figures significantly.

If all the hospitals brought under common ownership or control by the two challenged acquisitions are treated as a single entity, the acquisitions raised Hospital Corporation's market share in the Chattanooga area from 14 percent to 26 percent. This made it the second largest provider of hospital services in a highly concentrated market where the four largest firms together had a 91 percent market share compared to 79 percent before the acquisitions. These are the FTC's figures, and Hospital Corporation thinks they are slightly too high (quite apart from the question what to do with either or both management contracts); but the discrepancy is too slight to make a legal difference. Nor would expressing the market shares in terms of the Herfindahl index alter the impression of a highly concentrated market.

The administrative law judge concluded that the acquisitions violated section 7 because of their probable anticompetitive effects in the Chattanooga hospital market. While modifying some of his findings, the Commission agreed that the acquisitions were unlawful and ordered Hospital Corporation to divest the hospitals acquired in Chattanooga and to notify the Commission, in advance, of any similar acquisitions planned for anywhere in the country. The Clayton Act allows Hospital Corporation to seek judicial review of the Commission's order in any circuit in which it does business, see 15 U.S.C. Sec. 21(c), and for unexplained reasons it has chosen this circuit. It makes three arguments to us: there is no reasonable probability that its acquisitions in Chattanooga will lessen competition substantially; anyway the Federal Trade Commission has no constitutional power to bring an enforcement action, because the members of the Commission do not serve at the pleasure of the President; failing all else, Hospital Corporation should at least not be required to give the Commission advance notice of all future acquisitions.

The first 79 pages of Hospital Corporation's 85-page opening brief are devoted to the first argument, yet they make no mention of the standard of judicial review of the Federal Trade Commission's findings of fact and no effort to show that the findings are vulnerable under it. The standard is the familiar substantial-evidence standard: findings of fact that are supported by substantial evidence on the record considered as a whole bind the reviewing court. See 15 U.S.C. Secs. 21(c), 45(c); FTC v. Indiana Federation of Dentists, --- U.S. ----, 106 S.Ct. 2009, 2015-16, 90 L.Ed.2d 445 (1986); FTC v. Algoma Lumber Co., 291 U.S. 67, 73, 54 S.Ct. 315 318, 78 L.Ed. 655 (1934); Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324, 1329 (7th Cir.1981); Fruehauf Corp. v. FTC, 603 F.2d 345, 351 (2d Cir.1979); Sterling Drug, Inc. v. FTC, 741 F.2d 1146, 1149 (9th Cir.1984). When the FTC pointed out this omission Hospital Corporation replied: "The decisive question on this appeal is ... whether Chattanooga hospitals are likely to collude because of these acquisitions. This is a matter of economic analysis, not a dispute of underlying facts." The first sentence is wrong: the issue for this court is not whether the acquisitions create a danger of collusion but whether the Commission's conclusion that they do is supported by substantial evidence on the record as a whole. The second sentence is irrelevant, because the substantial evidence rule (like the clearly erroneous rule, see Mucha v. King, 792 F.2d 602, 604-06 (7th Cir.1986)) applies to ultimate as well as underlying facts, including economic judgments. This is implicit in the many cases that hold that the ultimate question under the Clayton Act--whether the challenged transaction may substantially lessen competition--is governed by the substantial evidence rule. See, e.g., National Dairy Products Corp. v. FTC, 412 F.2d 605, 616, 620 (7th Cir.1969); Dean Milk Co. v. FTC, 395 F.2d 696, 709, 711-13 (7th Cir.1968); Yamaha Motor Co., Ltd. v. FTC, 657 F.2d 971, 977 and n. 7 (8th Cir.1981); Fruehauf Corp. v. FTC, supra, 603 F.2d at 355; RSR Corp. v. FTC, 602 F.2d 1317, 1320, 1325 (9th Cir.1979); Ash Grove Cement Co. v. FTC, 577 F.2d 1368, 1377-79 (9th Cir.1978). (All but the first two of these decisions were section 7 cases, like this one.) Hospital Corporation has argued the case to us as if we were the FTC, which assuredly we are not. Our only function is to determine whether the Commission's analysis of the probable effects of these acquisitions on hospital competition in Chattanooga is so implausible, so feebly supported by the record, that it flunks even the deferential test of substantial evidence.

The Commission's detailed analysis of those effects fills most of a 117-page opinion that, whatever its substantive merits or demerits, is a model of lucidity. The Commission may have made its task harder (and opinion longer) than strictly necessary, however, by studiously avoiding reliance on any of the Supreme Court's section 7 decisions from the 1960s except United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963), which took an explicitly economic approach to the interpretation of the statute. The other decisions in that decade--in particular Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); United States v. Aluminum Co. of America, 377 U.S. 271, 84 S.Ct. 1283, 12 L.Ed.2d 314 (1964); United States v. Von's Grocery Co., 384 U.S. 270, 86 S.Ct. 1478, 16 L.Ed.2d 555 (1966), and United States v. Pabst Brewing Co., 384 U.S. 546, 86 S.Ct. 1665, 16 L.Ed.2d 765 (1966)--seemed, taken as a group, to establish the illegality of any nontrivial acquisition of a competitor, whether or not the acquisition was likely either to bring about or shore up collusive or oligopoly pricing. The elimination of a significant rival was thought by itself to infringe the complex of social and economic values conceived by a majority of the Court to inform the statutory words "may ... substantially ... lessen competition."

None of these decisions has been overruled. Although both United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974), and United States v. Citizens & Southern Nat'l Bank, 422 U.S. 86, 95 S.Ct. 2099, 45 L.Ed.2d 41 (1975) (both discussed in our recent decision in Ball Memorial Hospital, Inc. v. Mutual Hospital Ins., Inc., 784 F.2d 1325, 1336-37 (7th Cir.1986)), refused to equate the possession of a significant market share with a significant threat to competition, these cases involved highly unusual facts, having no counterpart in this case, that required discounting large market shares. In General Dynamics the shares were of current sales (of coal) made pursuant to long-term contracts entered into a long time ago; future sales would depend on uncommitted reserves, and one of the acquired firms had no uncommitted reserves. In Citizens & Southern the acquired banks were already under the effective control of the acquirer (they were its "de facto branches"), so that the formal merger had little competitive significance.

These cases show that market share figures are not always decisive in a section...